Americans who think of the $2,000 automobile as only yesterday are not going to like the 1980s. By the end of the '80s a $2,000 automoble will seem as antiquated as the nickel soft drink, and a new Chevette will probably cost about $15,000.
Of course, it will be smaller than the 1980 Chevette, the smallest car now made in America. Smaller, lighter and probably slower, too. Here is Detroit the experts reckon that half or more of the new cars sold in America in 1980 will be tiny (if expensive) models. And of course, they may be Datsuns, not Chevettes.
The biggest and most American industry in this country is about to be transformed, perhaps revolutionized, and it is not in good shape as this transformation begins.
The automobile, which defined modern American life, is about to be redefined itself, and the country will be changed in the process. The American companies that engineered the original automobilization of the nation are hoping and planning to be almost as important to the new era for which they are now planning, but this is still problematical.
Even General Motors, a behemoth among corporations, is losing money selling cars in the United States. (It is making a profit on other activities.) Ford Motor Co. lost about a billion dollars on its 1979 car operations in North America, and expects to lose another billion in 1980. (Ford stays in the black with huge profits from overseas operations.)
Chrysler Corp. teeters near bankruptcy, propped up now by the promise of federal loan guarantees, but trapped i n a weak market that could spell its doom. Only American Motors, newly associated with Renault of France, is both healthy and profitable.
The steadily rising sales curve for foreign-made cars in the United States is perhaps the most vivid symbol of the difficulties America's carmakers now face. One fourth of the cars sold in America today are made overseas. In California, the figure is one in two. Every time these numbers have jumped another notch, Detroit has declared that the trend to foreign cars has about ended. Every time the numbers have jumped again.
Today, foreign cars have the second largest share of the American market, after General Motors. Toyota alone holds the third biggest share of the market, after GM and Ford.
Despite the problems of unprofitability and foreign competition, though, people who work in the auto industry here exude optimism about the '80s. Fred G. Secrest, for example, a vice president of Ford, put it like this: "I do not see on the horizon a replacement for the product. Over the next 10 or 20 years I cannot see a better way to move people or stuff around."
Secrest asknowledged that the market has shifted faster toward fuel-efficient small cars than expected, and Ford won't be able to meet the new demand at once. "So we'll have a helluva time [in the next couple of years], but in the longer run we'll be all right."
The future is bright, auto executives argue, not the least because Americans will have to replace the 100 million cars they bought in the 1970s, when assumptions were different. In effect, the changed oil situation has given the industry a huge new market -- a replacement market for its own past mistakes. Of course, they didn't look like mistakes at the time. "It's just rubbish to say that the industry forced gas guzzlers on an unwitting ccountry," one executive said.
Of course the optimists are assuming that American manufacturers will be able to hold a dominant share of the sales the '80s will bring. They make this assumption in part, as a GM marketing executive pointed out, because 60 percent of American car buyers stick to the same make of American car throughout their car-consuming lifetimes.
Discussions with a variety of industry executives and outside analysts indicate there are two equally plausible, if mutually contradictory, ways to look at the future of the American car business -- a good news view, and a bad news view.
According to the good news view, the worst has passed, or nearly. "This industry has been through hell," in the words of Thomas H. Hanna, executive vice president of the Motor Vehicle Manufacturers Association. But last year, he and others noted, the American cars sold in this country actually got better gas mileage (on average 19.6) than the law required (19), and the industry will soon be able to give its customers the economy they want.
The optimists make these points:
General Motors' Chevette and successful new "X-Cars" (the front-wheel-drive Chevrolet Citation, Oldsmobile Omega and similar models) demonstrate that the industry giant is wellplaced for the '80s. Using its enormous financial resources, GM has already shrunk all its cars, moved strongly into front-wheel drive and diesel-powered cars and is experimenting on the most advanced fringes of auto technology.
After years of watching Ford make the biggest profits overseas, GM is poised to begin a worldwide offensive in foreign markets. Using its successful German operations and other overseas branches as a springboard, GM is ready to shed its insular, America-first reputation.
Ford, after lagging behind GM in converting to smaller cars -- apparently by deliberate choice, on the theory that more money could be made by keeping big models in production -- is now ready to compete with the imports. Next year Ford will introduce the small Erika, drawing heavily on the expertise of German engineers who have made Ford's German subsidiary hugely successful and profitable.
American Motors will be able to prosper by concentrating on the small cars that it will soon start coproducing with Renault and on the specialty vehicles that have served it well in recent years, particularly Jeeps. Renault is big and wealthy enough to keep AMC current with "the state of the art" in engine technology as it continues to develop in the coming decade.
Competition from Japan will diminish once the Japanese begin to make cars in this country.
In Detroit it is widely assumed that the principal reason for Japanese success has been substantially cheaper Japanese labor costs and a deliberate policy of pricing Japanese cars sold here at low levels. According to a common analysis, the Japanese make their real profits at home, and use the American market to keep their large, permanent workforces employed and achieve economies of mass production.
American auto executives and officials of the United Auto Workers believe it is inevitable that the big Japanese carmakers will begin production in the United States. Honda already has announced plans to do so.Last week, Douglas Frazer, president of the UAW, visited Toyota officials in Japan to press the case for American plants comparable to the one Volkswagen has opened outside Pittsburgh.
Japan eventually will see that it faces import restrictions in the United States if it fails to build cars here -- or so the people of Detroit believe. And when the Japanese are producing with American labor, they won't be able to maintain any competitive advantage in their pricing.
Later in the '80s something called the "world car" should come into being, to the advantage of GM and Ford. Arvid Jouppi, a financial analyst here who specialized in the car industry, predicts flatly that during the '80s there will be a standardized vehicle whose major components are made in a variety of countries. The world car "will be like a kernel of corn that will grow in every kind of soil," Jouppi predicts.
The optimistic analysis rarely includes Chrysler Corp., unless one is talking to a Chrysler executive. Many in Detroit fear Chrysler is doomed, though it is unpatriotic for any Detroiter to say so out loud. Others think it will survive only by lowering its horizons and adopting a marketing strategy closer to AMC's than Ford's or GM's, which means producing less than a full range of vehicles and looking for market segments where it can compete with the giants.
The optimists may well be right. The resources of the big companies here are formidable. As executives of American companies here repreatedly point out, all four have extensive experience making the small cars that all foresee as increasingly important -- though for some of the companies, this experience has been more in foreign subsidiaries than in America.
But there are competing views on all of these subjects: a bad news view of Detroit's future.
Perhaps the most articulate skeptic of Prof. William J. Abernathy of the Harvard Business School, one of the country's few academic experts on the car industry, who has published a book on the history of innovation at Ford.
In Abernathy's view, the '80s will be difficult for Ford and Chrysler, and he believes that the whole industry is poorly prepared for an era in which auto technology could change very rapidly.
The instinct of the auto industry, Abernathy said in a recent interview in Cambridge, Mass., is to seek "economies of scale" -- the mass production techniques that allow the companies to save production costs.
The historic effect of economies of scale has been to discourage innovation, Abernathy believes, because new technologies require new production techniques, and thus disrupt economies of scale. Alfred Sloan, the founder of General Motors, understood this perfectly. So he made it part of the original GM philosophy not to seek innovations, but rather to perfect existing technologies.
Abernathy -- and others -- predict that the industry is on the eve of radical changes that could leave behind companies so wedded to their economies of scale that they cannot adapt. He predicts that in the future there won't be a single "best" auto technology, but many "best technologies."
"It will be impossible for the small number of existing forms to stay on top of a large number of technologies," he said. "We're going to have to have more firms to cover more options. Economies of scale can no longer work as a strategy."
Of the existing companies in the world, Abernathy thinks only GM and Volkswagen, which is now a mini-GM after its acquisition of Porsche and Audi, are well-placed to cope with this kind of rapid change.
Specifically, Abernathy questions the viability of the "world car" notion. He thinks the American and European markets are too different for it to work. For example, the leading American manufacturer of disc brakes makes one type; a leading European manufacturer makes more than two dozen.
Abernathy predicts that new firms could come into the industry -- the way Honda of Japan has in recent years -- exploiting new technology to take business away from the old firms. This, he notes, is what Henry Ford, Sloan and other pioneers did to traditional makers of transportation equipment in the early 20th century.
Another skeptic about the auto industry is David E. Davis Jr., editor of Car & Driver, an influential if irreverent magazine with a monthly circulation of 725,000. Car & Driver has been arguing for years that American companies have failed to satisfy the desires of growing numbers of American car buyers for machines that are fun to drive, not just reliable and comfortable.
"The people who run the auto companies now graduated from high school in maybe the late 1940s," Davis said in an interview. "Their dream was a Buick convertible -- that was the ultimate car." The fact that several new generations with different dreams have grown up since then has not sunk in, davis contended.
"It's very hard for these guys to adjust," he said. "They say to themselves, 'People I know, who were in the Young Republicans with me, are actually buying Toyotas!' They can't believe it. They know the Japanese have got it wrong -- that their cars are too small, make too much noise, ride too hard."
So GM's most radical new small cars, the X-Cars, ride like Buicks. Car & Driver has given the X-cars race reviews, but Davis notes that they're still Detroit products of the old school. After driving one of them, "you'll never feel like you just met the greatest girl in the world," davis said.
Moreover, though X-Cars are selling well, GM's market research shows that most buyers of the new models picked them over another American car. In other words, these unusually economical and well-designed American cars are still not seriously challenging the foreign imports.
Skeptics have other questions about the optimists' arguments. For example, if GM is about to mount an offensive overseas, as it is, what will that do to Ford's foreign earnings, which not keep Ford afloat?
And if price is the key to the success of Japanese cars, why are they still outselling American models now that their prices are often higher? The same can be asked of the relatively expensive but hot-selling Volkswagen Rabbit, which now is made in America.
In fact the optimists and the skeptics are making predictions that neither can yet count on with confidence. The future is extraordinarily cloudy.
The behavior of the market is also unpredictable. Executives at AMC note that barely a year ago they were seriously considering junking tens of thousands of Volkswagen engines they had bought and felt then they could not use. At the same moment, early in 1979, Ford was happily selling out its entire year's production of its Mark V Lincoln Continentals, its biggest gas guzzler. Then the spring gas lines appeared.
The future also depends on unforseeable technological developments -- or a lack of them. Some in Detroit feel the car as we have known it is on the verge of extinction; others say they can't yet foresee a substitute.
So prophets must retreat to the short term, and that can be seen with some clarity. It will be filled with smaller, more expensive cars.
At least the American industry will be able to make small cars. Arguably, the government regulation the industry decries made this possible -- without it, GM, Ford and Chrysler were unlikely to move as fast as they did to shrink their automobiles.
Now they must expand their profits. Traditionally the American companies made their money on big cars, spare parts and accessories. "No one [in Detroit] has figured out how to make a high profit on a small car," according to analyst Jouppi. Now that must change.
The industry's solution is easy to imagine -- it is already under way. While the cost of all cars has risen steadily, small car prices have gone up the fastest. The price of the new Chevy Citation, one of the X-Cars, has gone up nearly 15 percent since the model was introduced last April. A fully-equipped Citation can cost nearly $7,000.
And the Chevette's sticker price has risen almost 20 percent since the fall of 1978, substantially more than the rate of inflation. With price rises like this and continued inflation, the $15,000 Chevette will be a reality before the end of the decade.